Wall Street Cools on Oracle

News out in the virtual world is that some analysts have trimmed their sails regarding Oracle’s financial picture. The company missed its revenue forecast last time and today the financial guys are concerned about competition in the database business and lack of strong market support for the company’s hardware.

Competition from companies like SAP with its in-memory database solution offers potential to disrupt part of Oracle’s database business. Oracle also has a memory based strategy and there are other factors to consider. For instance, how do SAP customers feel about buying their database services from their application provider vs. from their database company?

The same kind of question can be asked about hardware from Oracle, traditionally a software company. Oracle’s purchase of Sun a couple of years ago changed that equation and you can argue that Oracle is more of a hardware company than SAP is a database company but I think this all misses the point.

Whether we’re talking about in-memory databases, very large computers, data storage and analytic appliances, we are seeing fundamental disruption in multiple markets. What’s interesting about these disruptions is that the incumbent leaders in these markets are leading the creative destruction themselves.

In a more conventional market disruption we could expect a crop of small companies flying under the radar to create products and nip at the heels of the big guys for a few years until — Oh my gosh the sky is falling! — the moment when the little guys tripped up the big guys. That’s not happening here. The big guys, especially Oracle, are doing their own disrupting.

Perhaps it’s because hardware is no longer a place where Steve Wozniak can put a few chips together on a breadboard and invent the new, new thing. It takes big bucks and lots of R&D to build what Marc Benioff derisively calls a new mainframe or the data storage and analytics appliances the Oracle has brought to market in the last two years.

Oracle has done its job, it has brought out some impressive next generation technologies and it has seeded its biggest customers, the early adopters, with the gear. It has also received good reviews albeit with some first generation glitches.

Wall Street is doing its job too, though you might want to question the rationale. The Street has a ninety-day time horizon; we know this. But disruptions have their own internal clocks and they don’t kowtow to the analysts. So we have a situation in which Oracle is having some lackluster results regarding market uptake of its newest and priciest products. Not to worry, I say.

The alternative to really big iron is widely distributed iron and it will be interesting to see how this plays out. A widely distributed scenario can use smaller and older technologies, but you lose economies of scale, even in a cloud computing situation.

So although Oracle is experiencing slower demand for its new products, I think the situation is temporary. The new gear strikes me as the disruptive innovation that the market needs and we are going through a normal process of market uptake. The only difference between this and a more conventional disruption is that as a big public company, Oracle is going through this in full view of all the critics.